Monday, June 2, 2008

The second week of the auction of public airwaves — which is expected to resulted in new cellphone providers — kicked off on Monday, with at least $2 billion destined for government coffers.

After 16 rounds of bidding, the auction has already greatly surpassed the $1 billion to $1.5 billion many analysts had expected it would net. The auction is expected to last another few weeks.

The government in November gave potential new cellphone providers a break by reserving for them 40 per cent of the spectrum being auctioned off, meaning that Canada's big three incumbents — Rogers Communications Inc., Bell Canada Inc. and Telus Corp. — are unable to bid. The remaining 60 per cent of the airwaves are open to all bidders.

Calgary-based Shaw Communications Inc. continued to lead the 24 potential new entrants Monday, with high bids on 36 of the 292 licences up for auction. Shaw's high bids are mostly for licences in Western Canada. The company has kept quiet on what its plans are for any spectrum it may win.

Montreal-based Quebecor Inc. was second, with 23 high bids. The company, which before the auction said it was eyeing setting up a national network, currently holds high bids mostly in Quebec.

Winnipeg-based MTS Allstream, which saw its bidding partnership with the Canada Pension Plan Investment Board and U.S.-based private equity firm Blackstone Capital Partners fall apart just before the auction, was in third among potential new entrants. The company, which also had national network aspirations before the auction began, held seven high bids as of Monday, mostly in its home province of Manitoba.

Vancouver-based Telus Corp. continued to lead the established players with high bids for 59 licences, distributed broadly across the country.

Toronto, with its four licences, continues to be a major battleground for new players. High bids in the city's largest cellphone market are currently held by Data & Audio Visual Enterprises, the business backed by local entrepreneur John Bitove and Microsoft co-founder Paul Allen's investment company, and Globalive Wireless, the company behind the Yak brand of home phone and internet services.

Jaguar Wireless, a company led by David Parkes — the former head of Cantel, which eventually became Rogers Wireless — also held a high bid in Toronto. Halifax-based Bragg Communications, which runs cable provider Eastlink in the Maritimes, held the high bid on the final Toronto licence.

Eastern bids receiving no bids

Industry observers believe Bragg has no interest in Toronto, but is playing a strategy that will allow it to remain in the auction without driving up the prices on licences it really desires — those in the Maritimes. The vast majority of licences in Eastern Canada have yet to receive a single bid.

The government was criticized last fall for enacting rules that favoured new entrants because doing so would result in lower revenue from the auction. Liberal industry critic Scott Brison said the decision would result in the auction netting $200 million less than if it had been open with no special rules.

Lawson Hunter, executive vice-president and chief corporate officer of Bell, said the spectrum could go for up to 40 per cent less than it would have if the auction were open to the highest bidder.

"Basically you've sold an asset of Canada at well under market price," he said in November.